real estate finance - full book (500 pgs)

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Unformatted text preview: the value will most likely fall. The process the appraiser follows to do this is called reconciliation. Proper analysis and reconciliation are essential to a good appraisal report. The use of accepted appraisal methods does not in itself produce a sound value estimate. It must Dynasty School (www.dynastySchool.com) 12-15 REAL ESTATE FINANCE be combined with good judgment on the part of the appraiser, as well as experience in gathering needed information and making thorough analyses and value interpretations of relevant data. Each of the three approaches to value results in a separate indication of value for the subject property. In general, the greater the similarity among the three value indicators, the more reliable they are. However, it is very rare for all three value indicators to be identical. When the value indicators are not identical, the appraiser must somehow forge the value indicators into one estimate of value. This process is called reconciliation. Reconciliation is the process of analyzing the appraisal problem, selecting the most appropriate method of the three and giving it the most weight in determining the final estimate of value. Reconciliation is the easiest process when the value indicators are very similar. In that case, it is usually safe to assume that the value of the property lies somewhere between the lowest value indicator and the highest. Example: An appraiser arrives at the following value indicators: Cost Approach: $150,000 Market Approach: $145,200 Income Approach: $144,500 Since the value indicators are reasonably similar to each other, the value of the property is probably somewhere between $144,500 (the lowest indicator) and $150,000 (the highest indicator). However, the process of reconciliation is not a simple averaging of the three value indicators. In fact, there is no set formula at all for reconciling the values. The process relies entirely on the judgment and ability of the appraiser to arrive at the most reliable estimate of value. A primary consideration in the reconciliation process is the relative reliability of the three value indicators, especially when th...
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This note was uploaded on 12/30/2010 for the course SOC 101 taught by Professor Zhung during the Spring '10 term at Punjab Engineering College.

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